Lack of reforms hurting economy, says Moody’s

Tribune News Service

New Delhi, July 30

Global ratings agency Moody’s today said delay in implementing important reform measures was hurting business confidence in India and growth in the economy may suffer if the government does not deliver on promises.

Moody's also warned that "GDP growth is not likely to rise above 7.5% if the government continues to over promise and not deliver". The agency has pegged India's true growth potential at near 10%. The government has been facing criticism from the Opposition for not delivering on its election promises and commentary about the Indian economy is also becoming restive.

The report said the "jury is still out on Prime Minister (Narendra Modi)", but the government's failure to deliver on promised reforms is a major impediment to a broader economic growth momentum in the country.

In a report titled 'India's Outlook: Waiting for Reforms to Fuel Growth', Moody's Analytics also warned against curtailing the independence of the RBI in deciding on interest rates.

A revised draft of the Indian Financial Code has suggested creation of an interest rate-setting panel, where majority of seven members will be nominated by the government and the RBI chief would not have any veto power over the panel’s decision.

"We believe a government-elected panel undermines the RBI’s independence. Moving to the new model would dent the RBI's competency. Credibility would be lower, politics would drive decisions and transparency would be reduced," the report said.

Calling the prospect a "dangerous road ahead", the report said "a recent draft Bill could undo the RBI’s good work". Giving thumbs up to the central bank, Moody’s said India's monetary policy has been effective with Governor Raghuram Rajan at the helm and hoped that given the criticism of the draft Indian Financial Code Bill, it is unlikely to pass Parliament.

Commenting on the prospect of reform measures being stuck, Moody's Analytics said, “India's political infighting is denting business confidence. Without a majority in the Upper House, the ruling BJP’s power has been nullified and the opposition has blocked proposed reforms".

Key reforms such as the land acquisition Bill, flexible labour laws, and the GST have failed to pass Parliament. "Given the political seesaw, these are unlikely to be delivered until later this year or even 2016," the report said.